Loading...
HomeMy WebLinkAbout2010-06-15 MinutesMinutes of the June 15, 2010 Audit Committee Meeting The following audit committee members were present: Tony Uth, Jr. Judy Jacobs Bobby Ferrell, Alderman The following City staff were present: Paul Becker, Finance and Internal Services Director Marsha Hertweck, Accounting Director Vicki Deaton, Internal Auditor Don Marr. Chief of Staff The following BKD staff were present: David Coleman, Audit Manager Don Desoto, Partner 1) The minutes from the February 10, 2010 Audit Committee Meeting were approved by all audit committee members present. Draft minutes from this meeting and the February 10, 2010 final minutes will be forwarded to the City Council to keep them informed of committee proceedings. 2) Internal Audit Update: • Defining IT Audit and information gathering for IT Assessment being performed by consultant: the Project Manager is currently writing an RFP. • Time and Attendance Software selection committee: a selection should be made next week. Solid Waste Hauler Vendor Audits (to determine contract compliance with vendors performing solid waste services within the City): this is ongoing and should be completed later in the summer. The Internal Auditor briefly explained the terms of a standard Solid Waste Hauler Agreement and how the audit will attempt to verify agreement requirements and fee payments remitted to the City. Don Marr explained some of the reasons these agreements were originally initiated and why they are being audited at this time. Internal Audit review of HR Classification self -audit: this is ongoing and will continue throughout 2010. Retirement Savings Plan Reconciliation: this is complete except we are waiting on information from the trustee related to a fee payment question. City Facility Emergency Evacuation Project Leader: Evacuation Plans have been developed and City facilities will begin holding fire drills in July. 3) Alderman Ferrell asked how many employees participate in the Retirement Savings Plan. This is the plan for general employees that the City matches at 12%. He also asked how many employees put in as much as the City, or at least 12%. Marsha said that she could run a report to get the information for Alderman Ferrell. Don Marr mentioned that according to a recent HR survey of employees, the retirement plan benefit was ranked as being in the top 2 most valued benefits provided by the City. 4) The meeting was turned over to BKD, LLP, the City of Fayetteville's external auditor. The City handed out a draft of the City's Comprehensive Annual Financial Report (CAFR). David Coleman went through the information contained in the CAFR to highlight certain items. The first item, which is in the introductory section, is the Letter of Transmittal. This letter is signed by the Mayor and the Finance Director, and leads the reader into the financial statements. Next in this section is the Certificate of Achievement for Excellence in Financial Reporting awarded by the Government Finance Officers Association for the 2008 CAFR. The introductory section also contains an organization chart and list of City officials. The next section, which is called the financial section, contains the Independent Accountant's Report on Financial Statements and Supplementary Information. The opinion is based on the auditor's assessment of the fairness of the financial statements. The opinion issued for the 2009 statements will be unqualified — a clean opinion. David called attention to the Management's Discussion and Analysis (MD&A). This is the City's overview to the financial statements. After the MD&A is the Basic Financial Statements. David briefly explained the Government -wide Financial Statements and the basis of accounting on which they are prepared. He also explained that these statements include the City's two component units — the Public Library and the Advertising and Promotion Commission. David mentioned that BKD audits the Public Library's financial statements, so the opinion issued will cover those statements too. The Advertising and Promotion Commission is not currently audited separately, but the opinion covers the Advertising and Promotion financial information presented in the CAFR as well. David described the next statements in the CAFR, which are the Fund Financial Statements. The fund statements tell how the City budgets and gives current financial information. David told the committee that some funds are considered major and some are not. There is a calculation that determines this classification. Financial information is presented separately for major funds in this section of the CAFR. David also described the differences in reporting between governmental funds and proprietary funds. After the Fund Financial Statements are the Notes to the Basic Financial Statements. David stated that there are no changes from last year in what must be reported in this section. There are 2 new GASB standards which are effective in 2010, GASB Statement Number 51, "Accounting and Financial Reporting for Intangible Assets" and GASB Statement Number 54, "Fund Balance Reporting and Governmental Fund Type Definitions". After the notes is the Required Supplementary Information, which shows trend information on the City's pension plans. Next in the CAFR is the Combining and Individual Fund Statements and Schedules. These are financial statements for funds that are consolidated and presented in the Basic Financial Statements. The next section is the Statistical Section, which discloses financial trends, demographic information, and revenue and debt capacity. This information is provided to assist the readers of the CAFR. Next in the CAFR is the Single Audit Section. An opinion, the Independent Accountant's Report on Compliance and Internal Control Over Compliance with Requirements Applicable to Major Federal Awards Programs, is issued in this section. There are no findings to report on the Single Audit for 2009. David reported to the committee that more federal grant programs were audited for 2009 than in the past due to Recovery Act funding. The City received more federal monies in 2009 than in prior years. In 2008, BKD audited 1 major program. BKD audited 5 major programs during the 2009 audit. The FEMA reimbursement for the 2009 ice storm, which was more than $3.9 million, was audited as a major program. David complimented the City's staff on providing the information promptly so the audit could be completed on schedule. Alderman Ferrell asked about the risk evaluation used to choose the programs audited. David explained that the federal government provides criteria and requirements that determine the program(s) that must be audited. He said that all programs that contained Recovery Act funds were required to be audited in 2009. Also, risks are always greater the first year a grant is received and administered. The City has increased federal grant awards to over $7.3 million in 2009. David talked with the City management and committee members present at the meeting about the extensive administrative and reporting requirements for grants. He urged the City to be mindful of grant requirements as we increase grant requests and applications for funding in the future. The Single Audit Section is the final section in the CAFR. David said that BKD will issue their reports and audit opinions as of this date, 6/15/2010. David reviewed the letter for the Mayor, Council, and Audit Committee included with the audit report. David explained that the letter discusses the City's accounting policies and practices. He called attention to the Other Post Employment Benefit (OPEB) disclosure which relates to retiree health insurance benefits. Retirees pay the entire cost of monthly health insurance premiums at the same rate as active employees and receive a benefit from the blended premium rate from all of the employees participating in the City's health insurance plan. The City funds the plan on a pay-as-you-go financing method. There is currently an actuarial accrued liability of about $3 million associated with the provision of this benefit. Another key disclosure is the deposit and investment disclosure. The City has no custodial or credit risk because all deposits are fully insured. Alderman Ferrell asked about the FDIC's Transaction Account Guarantee (TAG) Program, which provides for the FDIC's guarantee of qualifying accounts. David said that if the FDIC does not guarantee the City's accounts, the bank will provide collateral. The letter also addresses audit adjustments. David reported that one adjustment was recorded because it was made early in the audit and the others were passed adjustments. The passed adjustments were for unrecorded accounts payable and no allocation of other post employment benefit liabilities among funds. The passed adjustments were not material. There were questions about allocating the other post employment benefit liabilities among funds. Paul stated that we do not make the allocation because the City is not funding the plan liability. There are many variables in the actuarial assumptions, so the funding numbers are not stable. The City is currently funding the plan on a pay-as- you-go basis. Don Marr asked if other cities in the state of Arkansas are funding their plan liabilities. David stated that a few cities, such as Little Rock and Fort Smith, have established trusts which are partially funded. The letter states that no significant issues were discussed with management and no material weaknesses, significant deficiencies, or other control deficiencies were included in the letter. The letter contains only one comment, which is a repeat comment from prior years and is related to the unfunded pension obligations of the Policemen's Pension and Relief Fund and Firemen's Pension and Relief Fund. This is the old fire and police pension plans. There is currently an approximately $11.3 million actuarial liability associated with these pension funds. The plans are funded by a portion of a statewide tax on insurance premiums of out-of-state insurance companies and a property tax levy. There is a note disclosure in the CAFR explaining the City's position in relation to the funding status of these plans. Based on an interpretation of state law by the City's legal counsel, management believes the City may not be legally obligated to fund any plan deficiency. There was further discussion related to these pension plans and the City's position as stated in the CAFR. Mr. Desoto reported to the committee that the City's accounting function and internal controls are strong. He also mentioned again the extensive administrative requirements for grants. He asked the City to be aware of the work necessary to comply with grant requirements as we increase grant requests and applications for funding in the future. Don Marr asked if administrative allocations provided in some federal stimulus grants are adequate to cover the support costs. David does not believe costs are fully recovered in these grants. Also, many grants do not allow for administrative cost reimbursement and the administration and reporting requirements can vary widely between grants. Mr. Desoto said that BKD was very pleased and proud to have the City of Fayetteville as one of their clients. He also complimented David and the audit team on their work during the 2009 audit. He encouraged the City to utilize the BKD staff as a resource. David reported to the committee that the City's accounting staff was very helpful and worked well with the auditors. BKD complimented the City on correcting past management letter control related comments and having no internal control related comments for 2009. Tony Uth, the chair of the audit committee, will present the CAFR to the City Council at an agenda session after final completion of the report.